CHAPTER TWO LITERATURE REVIEW
2.7 INSURANCE CONSUMPTION TRENDS IN THE USA AND THE UK
customer, financial firms will share the customer relationship, just as Sainsbury and Heinz have a relationship with a customer that buys baked beans at the supermarket.
• Paying firms to share assets: Instead of hiring staff and building call centres for their own exclusive use, firms will use the Net to share assets and overheads. Life Companies will partner or outsource to share costs of administering pensions business, just as Barclays and Lloyds TSB have done with their merged cheque-processing operation.
The Net will put inefficient firms and business units into the spotlight as specialists use the Net to co-operate. To thrive in eBusiness networks, life companies must use the Net to break up their vertically integrated structure - allowing individual business units to specialize and seek new partners.
Forrester spoke to executives at 30 of the UK's largest life- assurance companies and the life- assurance divisions of the UK's larger banks to find out the effects of the Net on the provision of life and pension provisions in the UK. Itwould appear that one of the major concerns in the UK is distribution, and how to reach the customer in the most economical and efficient manner.
2.7.2 NORTH AMERICAN TRENDS
Forrester conducted a similar research on the North American market interviewing 40 of the US largest life insurance companies. The conclusions drawn from the interviewees were:
Rely on agents to sell and will continue to do so: Insurers are loath to sell life insurance online, pointing to product complexity and fears of channel conflict.
Will use technology to improve agent's efficiency: Life Insurers are building extranets to make their agents more productive.
Question their agent's ability to generate new business: Carriers believe that agents don't prospect aggressively enough and, by not sharing customer data, make it difficult for carriers to cross-sell.
Forrester also provides conclusive evidence that the advisor is well and alive in America.
In an article: Independent Advisors attract the Aftluent, 75 % clients with investable assets over $1 million have an advisor. A third of this number use independent professionals.
This translates into 1 million households, or a quarter of the total US affluent market. Most of these investors consider an independent to be their primary advisor. The affluent value their independent advisors highly. Those who rely on a single independent advisor are more loyal and satisfied than any other affluent group of investors that uses advisors.
Those investors, who value autonomy, have independent advisors. They are more self- directed investors. They use the Net to track, trade and transfer their assets, pay bills, and communicate with their advisors. While the affluent with advisors pay an average of $ 1 400 per year for advice, those whose primary advisor is independent are half as likely to pay commissions and twice as likely to pay a percentage of their assets compared to their peers.
Similar trends are also common here in South Mrica. Forrester's research in the British and American Life Insurance markets highlights two distinct schools of thought on distribution.
• The British are keen to find online solutions and distribute their products by forming partnerships and sharing client data.
• The Americans still believe in the role of the intermediary despite the developments of technology and its role in creating greater efficiencies. Each company, as highlighted in the case of Northwestern Mutual, individually addresses the issue of client retention and loyalty.
Creating a loyalty-based system in any company requires a radical departure from traditional business thinking. The success of Vitality and the American examples from Reichheld shows direct linkages between providing value for customers and a superior financial competitive position. Doing what's best for the client does not conflict with high
margins, but it's the only way to ensure long-term profitability. It puts creating customer value at the centre of its business strategy, and demands significant changes in business practice - redefining target customers, revising employment practices, and redesigning incentives and finding innovative products solutions that remain flexible to changing needs.
2.8 BRAND IMAGE& REPURCHASE DECISION
Brands are a major determining element in the repeat purchase of consumer products, industrial products and services, and an important way of adding differentiation at the augmented level. The value of brand image can best be described with cola blind test example (Table 2.2):
Table 2.2 Brand Equitv Comparison
Open Blind
Prefer Pepsi 23% 51%
Prefer Coke 65% 44%
Equal/Can't say 12% 5%
Source: Relationship Marketing, Christopher et al. Pg. 60
The brand image adds value to the offer in the mind of the consumer when they see the familiar Coke package and Logo. Coke is still number one, despite the many generics in the marketplace.
The degree to which consumers are committed to a particular brand or goods or services depend on a number of factors: the cost of switching, availability of substitutes, the perceived risks associated with the purchase, and the degree to which they have obtained satisfaction in the past. Due to higher perceived risks, costs and lack of substitutes, consumers are more likely to remain customers of a particular company with services than goods. Another reason for consumers to be more brand loyal with services is the recognition of the need for repeated patronage in order to obtain optimum satisfaction from the seller. Becoming a "regular customer" allows the seller to gain knowledge of the customer's tastes and preferences, ensures better treatment, and encourages more interest
in the consumer' satisfaction. Thus a consumer may exhibit brand loyalty to cultivate a satisfying relationship with the seller. (Ziethaml & Bitner: pg. 40)
Sunday Times and Markinor published a recent survey on brand awareness, trust and loyalty on the Insurance Industry in South Mrica. (Figure 2.1)
Filrnre 2 1 Brand EQuitv' Insurance ComDanies
.
Brand rating Top of Mind Trust& Loyalty Awareness Confidence
Old Mutual 27% 44% 84% 72%
Metropolitan 14% 27% 76% 69%
Sanlam 13% 27% 74% 65 %
Liberty 3% 6% 63 % 55 %
The Liberty brand, which has been around for longer than most gets a low brand relationship score. Old Mutual is way ahead followed by Metropolitan, Sanlam and Liberty in fourth place. Sanlam attributes it third place to low ad spend. Metropolitan's position is most reflective of the mass-market segment at which it is pitched. Liberty's Mike Jackson disagreed with these results saying that Liberty was a niche market company, targeting high net worth individuals falling into LSM 7 and 8. Martin Slack MD of Markinor, however, argues that these LSM are nowhere near high net worth. Momentum is believed to be closer to this target market than Liberty. (Sunday Times: 7 October 2001)